HL Deb 17 May 1993 vol 545 cc1621-40

8.34 p.m.

Baroness Lockwood rose to move, That this House takes note of the report of the European Communities Committee on Distance Selling [16th Report, H.L. Paper 51].

The noble Baroness said: My Lords, I think perhaps there might be more unanimity in the debate on the report we are now about to consider. Sub-committee C of the European Communities Committee, under my chairmanship, carried out a short inquiry at the end of 1992 into the proposal for a Council directive on the protection of consumers in respect of contracts negotiated at a distance.

The Commission's draft directive proposes a general framework for such protection and an accompanying recommendation provides for this to be supplemented by self-regulatory measures. The Select Committee's 16th report on distance selling was published in February of this year and the Government's response to this report, for which I must thank the Minister, was received last month.

Distance selling is a relatively new term. It is being used to cover all situations where a contract is concluded without the simultaneous physical presence of buyer and seller. Mail order selling is the most familiar example of distance selling but new developments prompted the Commission's proposal for a directive in this area. These new developments are, first, the completion of the internal market and, secondly, the development and increasing availability to consumers of simple electronic means of communication.

Distance selling, or distance purchasing, typically takes place within the consumer's own home. I doubt whether many noble Lords do much of their shopping by means of telephone, television, fax and home computer. However, these new forms of distance selling are already a reality for a few and there is potential here for rapid growth. Already, according to the Commission's explanatory memorandum, it is estimated that in Germany, France and Great Britain between four and five per cent. of all non-food trade takes place through the traditional mail order system.

The fourth Community programme on consumer protection—the three-year action plan for 1990 to 1992—included the proposal for a directive on distance selling. That plan said that cross-frontier solicitation using television and new communications technology would stimulate demand for cross-frontier purchasing and that the full benefit of the internal market would be achieved only if its citizens were prepared to purchase goods and services available anywhere in the Community.

In carrying out our inquiry the committee kept clearly in mind the traditional benefits of freedom to contract. We were aware that over-regulation can, by stifling enterprise, damage the interests of the consumer as well as those of the supplier. But in a Community-wide market where information, organisation and economic muscle are so unevenly distributed between the supplier and the consumer, the committee believes that some balancing mechanisms are required. The committee also kept in mind the proper application of the principle of subsidiarity in relation to consumer protection. We were therefore looking for the minimum Community action consistent with giving the consumer essential protection and promoting the confidence of consumers to shop across borders.

Evidence was received from 20 organisations which are listed in Appendix 2 at page 17. In this evidence there was wide support for the principles of consumer protection underlying the proposed directive. There can be little doubt that consumers, when they are solicited to make a purchase, need to be given information about the service or the product that is adequate in quality, quantity and timeliness. Equally, there can be little argument that in order to safeguard the consumer from undue pressure from the buyer, and from impulse buying, there needs to be a cooling off period. Again, I think there can be little argument that where the consumer suffers from non-performance of a contract, redress needs to be readily available. Further, the increasing use of payment by credit card, where the number of the credit card is given but the card itself is not presented, is easily open to abuse and requires particular consideration.

In addition, important questions of privacy arise from some distance selling techniques. Automatic telephone calling and what is called cold faxing—unsolicited material coming in on one's own fax and one's own paper—are particularly intrusive and, we believe, objectionable. Inertia selling is another technique which needs to be carefully controlled and against which the consumer requires legal protection. In virtually all member states there is some legislation against this. Nevertheless, according to the Commission, inertia selling practices continue to exist.

On all those issues availability of effective redress for the consumer and adequate means of enforcement of the contract were matters which we were anxious to see provided and our views are expressed largely in paragraphs 46 to 54, to which I shall refer later. It is easy enough to set out desirable principles such as those I have mentioned. It is more difficult to apply those principles to particular situations and to make precise rules which strike the proper balance between necessary consumer protection and excessive regulation. The ideal would be a regulatory framework which is not over-prescriptive or a costly burden on traders but a simple, flexible system with a generally light regulatory touch combined with effective sanctions and a means of redress.

The committee was also anxious that there should be no levelling down of the standards of consumer protection already available in this country as a result of the adoption of the proposed directive. We believe that the directive should provide a minimum framework of protection and that each member state should have the right to set higher levels of protection if it so wishes.

Another desirable feature of the situation in this country at present is the extent to which the traditional forms of distance selling, such as mail order, are well controlled by self-regulatory bodies such as the Advertising Standards Authority and others. We were very anxious that that situation should continue and be built upon in the newer areas of distance selling.

In paragraph 46 of our report we make some recommendations about the extent of information to be provided to the consumer and say that there should be no duplication of provision which would be an unnecessary burden on the provider.

Concerning privacy, in paragraph 47 we are opposed to the consumer having to be the unwilling recipient of mail shots, telephone canvassing or cold faxing. As to the cooling-off period, in paragraph 49 we say that where practical all forms of distance selling should be subject to a cooling-off period of a minimum of seven days from the receipt by the customer of the goods or from the beginning of performance of an essential part of the service.

We believe that inertia selling is an unwarranted imposition on the consumer which should be prohibited. However, we recommend in paragraph 51 that the proposed directive should be amended so as to permit the common and convenient practice of supplying on approval at no extra cost to the consumer a close substitute in place of an ordered article.

We strongly support the intention of Article 12 to protect the consumer from misuse of the credit card. However, we believe that the drafting is so loose as to invite possible fraud by the customer. We suggest that tighter drafting is required to maintain a just balance between the card holder and the supplier.

As to the security of advance payments, we say in paragraph 53 that we see it as critical for the development of distance selling markets across the Community that the consumer should have confidence that any advance payment will not be lost if the ordered item or service is not received. We believe that schemes similar to the mail order protection scheme should be generally available and that it is right that the trades concerned rather than the Government should be expected to put suitable arrangements in place. We therefore welcome the fact that the Commission has addressed the issue in the non-mandatory recommendations rather than in the proposed mandatory directive. However, we believe that those voluntary arrangements are of such importance that we recommend that the Commission should review the situation in three years' time.

On the question of redress and enforcement we believe that it is often the case in this country now that an individual consumer lacks the information, resources and, perhaps, perseverance to pursue a complaint about distance selling to the point of obtaining adequate redress. We believe that there are considerable additional obstacles to be overcome where a cross-border transaction is involved. We also believe that there is an obligation on the individual trader and on trading associations as well as on statutorily backed enforcement agencies to respond to those needs.

However, we did not go so far as some of our witnesses would have liked in supporting the right of consumer organisations to initiate representative action for redress. The committee took the view that consistent standards of enforcement and the avoidance of needless litigation would be best served if only those bodies required to act in the public interest were able to bring actions on behalf of the consumer. We suggest that in this country the Office of Fair Trading seems well placed to carry out that function. We attach great importance to publicity being given to all available means to those operating the system of enforcement.

I am encouraged by the generally positive response of the Government to the report on distance selling. However, there is one matter on which I should like to press the Minister to think again; namely, whether financial services, including investment, banking and insurance services, should remain within the scope of the directive.

In the evidence we received from the Commission's representative it was stressed that the requirements of the directive were the essential minimum that should apply to all sectors of distance selling, including financial services. The point was made that many of the requirements of the directive were already adopted as good practice by the most reputable firms and were embodied in codes of practice by the best trade organisations. The Commission considered that the great potential for the increased cross-border selling of financial services would be realised only if consumers had confidence to buy outside their own country's jurisdiction. We suggest that that confidence would be lacking if financial services were excluded from the scope of the directive.

That general line of argument for the inclusion of financial services within the scope of the directive was supported by consumer groups as well as by the Director General of Fair Trading. He saw advantage in a simple horizontal measure which would apply across the board to all sectors of distance selling.

On the other hand, from the banking and financial organisations we heard the argument that the directive's provisions were inappropriate or unworkable or risked confusion with other legislation if financial services were to remain within the directive's scope. I have to say that the committee was not persuaded by those arguments which, we believe, take insufficient account of the intentions underlying the drafting of the directive.

Article 15 expressly provides that other Community legislation specific to particular situations, including financial services, will be unaffected by the directive. We believe that the drafting of Article 11(4) is intended to disapply the cooling off provisions where the peculiar circumstances of financial markets make them inappropriate. We accept that clarification and refinement of the text of those provisions and others which impact on financial services is required. However, the committee was firmly of the view that all forms of distance selling should remain within the scope of the directive.

I ask the Minister therefore, when she replies to the debate, whether she could not go rather further than she did in her formal response to the committee when she said that although no final decision on the matter had yet been reached by the Government she remained inclined to the view that financial services should be excluded.

Finally, I should like to thank all members of Sub-committee C for their help and support during the inquiry. On behalf of all the members, I wish to extend our thanks to our clerk, Mr. John Goddard, for the application and support he gave to the members of the committee during the inquiry. I also pay tribute to the co-operation we received from those who gave evidence to the committee. I beg to move.

Moved, That this House takes note of the report of the European Communities Committee on Distance Selling [16th Report, H.L. Paper 51].—(Baroness Lockwood.)

8.52 p.m.

Lady Kinloss

My Lords, the committee of which I was privileged to be a member was indeed lucky to have the noble Baroness, Lady Lockwood, as chairman. She guided the committee with her usual kindness and skill. I agree with the committee in its opinions and report on distance selling. It would seem that now is the time to have a body set up with the resources to ensure that justice is done both to the consumer and the trader.

In a world where technology is increasing so rapidly, as the noble Baroness, Lady Lockwood., said, there are at present many means of distance selling across borders such as telephone, television, fax and home computers, among other electronic methods. The new technology for distance selling is different from the mail order purchase. With the latter one can study a catalogue and decide whether or not to purchase a particular item. But if an order is made by electronic means, the purchaser may not be fully aware of what the purchase is like.

In its written evidence the Consumers' Association does not consider that the prior consent, which appeared in earlier drafts of the directive, is necessary for most current forms of distance selling. However, it believes that prior consent is appropriate for any forms of distance selling which cost the consumer money. One instance could be cold faxing to a recipient who has not asked for information but who has to bear the cost of the paper.

Paragraph 23 of Part 2 of the report suggests that the consumer should have the right not to receive certain types of solicitation such as automatic telephone calls or faxes. The Commission's explanatory memorandum suggested that that could be assured either by an opt-in or opt-out regime. Opting in would require prior consent from the consumer; opting out would allow the consumer to refuse certain types of solicitation. How would the consumer have the opportunity to refuse a cold fax if he were unaware of the cold fax being sent until he has received it? The Consumers' Association regarded an opting-in requirement as unnecessary except where the costs would fall on the consumer as in the practice of cold faxing. It therefore suggests that Article 4 should be amended to add after consumer's privacy, "and economic interests". Perhaps that would be one way of safeguarding consumers, not only from probably unwanted goods but also those which cost them unnecessary money.

Article 8 of the directive on inertia selling does not consider it necessary to prohibit companies from sending unsolicited goods or services to consumers. However, it does recommend that it should be made clear to consumers that they do not have to return or pay for unsolicited goods and that that right should be written into the material accompanying the product. That is fine for products considered under Article 8 of the directive. However, as I have already mentioned, faxing of unsolicited information where the recipient has to pay the costs of the paper is not covered under Article 8 as worded. Perhaps it would be covered under Article 4 if it were amended as suggested by the Consumers' Association.

I wish to speak on one other matter: payment by credit card. It seems to me that that form of payment can be open to abuse in all sorts of ways, and witnesses were certainly varied in their approach to the question. In my mind the key question is whether that form of payment is being abused, in what way and by whom. One would need very clear indications of wrong doing before considering how to counter it. That is the matter which both the Government and the Community should watch until or unless action becomes necessary. The committee believed that tighter drafting was needed in Article 12 to achieve the desired effect while maintaining a just balance between the card holder and the supplier. I look forward to hearing what the Minister has to say when she replies.

8.56 p.m.

Baroness David

My Lords, I should like to thank the noble Baroness, Lady Lockwood, for chairing our committee most ably and for introducing the debate today. On these occasions one always wonders what is left to be said after a comprehensive explanation such as we have just had. Perhaps the role of the other members of the committee—I am one—is to underline and emphasise certain points that the chairman has made and to say about which particular aspects one feels strongly oneself.

There is no doubt about the need for such a directive in the light of the fast-changing world of new technology and the clear evidence which already exists that there is abuse and mischief. I much enjoy the use of the word "mischief" which apparently seems the right word to use in this context. It is interesting to see for how long there has been pressure for the directive. In fact it was in 1972 that the Commission decided to institute a specific policy for consumer protection. There seems to have been strong pressure since 1987 to take legislative action. That was the year that TV shopping arrived in Europe. It was also in that year that the notion of distance selling appeared for the first time in member states' texts.

Most states have produced some laws to deal with the situation and to protect the consumer and the trader. There has certainly been a good deal of self regulation. That has been conspicuously successful in many areas in this country. But it is not enough when there is bound to be a huge increase in cross-border trading with the single market. There must be adequate protection for both the buyer and the seller of goods and services.

In their response to the report, the Government stated that they would have preferred to rely on the self regulatory regime but accept that with the coming of the single market, the industry may see an increase in trans-border sales which it may be appropriate to regulate at the Community level. I am sure that that is right. The Government agree, as we recommend, that there should be a review within five years of the adoption of the directive. That seems eminently sensible when the future is uncertain.

I believe that it is accepted that the Commission intends the directive to be a minimum measure and that member states will be allowed to introduce and make certain more stringent legislation if they so wish. The Government wish that to be explicitly stated in the directive so that the existing levels of protection in the UK will remain. Article 15, which states, Nothing in this directive shall preclude the application of provisions specific to techniques, products, or services under other Community instruments", could be extended, I imagine, to cover that position.

The question of whether financial services should be included or excluded from the scope of the directive has to be discussed. The opinion of the committee—and certainly I support the committee strongly in it—is that they should be included. The Consumers' Association thought that the financial services sector generated a considerable volume of complaint. I considered the evidence of those supporting the inclusion of financial services, particularly the Office of Fair Trading, a good deal more convincing than that of the Securities and Investments Board which was not in favour. Sir Bryan Carsberg, the director general of OFT said in evidence: I think that financial services and indeed other kinds of services may particularly lend themselves to selling at a distance and are often the sort of selling that cause more problems than transactions in goods". Again, he said: There are gaps at the moment in the provisions that apply to services". Later, there is the sentence to which the noble Baroness, Lady Lockwood, has already referred. It makes sense to have a single, horizontal measure like this which offers a bare minimum of consumer protection … which can be applied across the board". I shall be interested to hear whether the Minister still holds the view taken in the response that these services should be excluded.

Inertia selling (paragraphs 27 and 28 of the report) will, I am sure, be spoken of by a good many people. It is to me an intolerable practice. Although there are specific provisions in nearly all member states, inertia selling goes on. There are sales practices which proceed on the basis of failure to reply implying consent. I find that intolerable. I am glad that both the Minister and the Commission took the view that it was a serious imposition on the consumer and saw merit in widening the scope of the current domestic legislation along the lines suggested in the directive.

The Consumers' Association thought outright prohibition unnecessary. I would he tougher. It is an absolute intrusion on privacy, to say nothing of the waste of paper and packaging. It surely should be possible, as my noble friend Lady Lockwood said, to devise a law which would not prevent the supplying of a close substitute in place of a requested article, on approval, returnable at the consumer's option and at the supplier's expense.

Another point closely linked to the last point is the right to privacy. The Government said in their response that the question of an individual's right to privacy is an issue which should be dealt with elsewhere and not in the directive, although they agree that the consumer should not be an unwilling recipient of mail shots, telephone canvassing or cold faxing. I would favour, as the explanatory memorandum suggested, the consumer's right not to receive certain types of solicitation, such as automatic telephone calls or faxes, by either an "opt-in" or an "opt-out" regime. Opting in, as has already been said, would require prior consent by the consumer to the particular form of solicitation. Opting out would allow the consumer to refuse to receive certain types of solicitation.

At the risk of a slight digression, having expressed my objection to being approached by telephone, etc., I have sympathy for those people who have to do the telephoning and have to ask people to buy. I wish to ask the Minister what assurances she can give us that the terms of employment for those engaged in such activities achieve two ends: first, that they comply with European employment directives; and secondly, that they satisfy the requirement, on which the UK should insist, for the protection of vulnerable workers who are in the main casual or part-time.

A final word on credit cards. Their use by people, both in person and on the telephone, is increasing all the time and there should be safeguards, particularly where a card itself is not presented at any stage of the transaction. But it is right that we should point out that the drafting of Article 12 is so loose as to invite fraud by the consumer and that tighter drafting is required. Here, both we and the Minister are as one. I look forward very much to hearing what she has to say.

9.4 p.m.

Lord Lyell

My Lords, I hope that the noble Baroness and my noble friend on the Front Bench will permit me to intervene for two minutes, above all to express my appreciation for the clear, interesting report which has been presented tonight by the noble Baroness, Lady Lockwood. We thank her for all the hard, detailed work and the evidence that the committee heard, as well as the conclusions that it came to.

I wish to draw noble Lords' attention to two paragraphs on page 13 in the opinion of the committee and two points which came to my notice and particularly impressed me. That is the "well-conducted self-regulation"—in the phrase of the committee—of the Mail Order Traders' Association, carefully watched over by the Advertising Standards Association and, as a backstop, the Office of Fair Trading. It seems that the voluntary regulation which was presented by the mail order traders and the mail order protection scheme which was outlined by the noble Baroness, Lady Lockwood, backed by the Office of Fair Trading was "an essential backstop" which exemplified that desirable arrangement.

In the limited amount of trade which I have carried out, now known in "Eurospeak"—at least north of the Border—as "distance selling", I have never encountered any problem. Indeed, I am startled at the terms of credit that one is able to obtain, quite apart from the range of goods that are presented.

I was impressed also by paragraph 39 in the opinion of the committee, which allows each member state to set and enforce its own consumer protection arrangements. I strongly support that thrust by the committee. Page 31 of the evidence, paragraph 147, quotes Mr. Tamlin's evidence of the mail order traders. He points out that the code of practice which he launched jointly with the Office of Fair Trading in November 1978 has proved to be the standard for all codes of practice and arrangements that have been stressed throughout the report. It seems to me to be a perfect example of our own consumer protection being the standard which we hope the other member states will be able to reach. With that said, I commend the report and congratulate the noble Baroness. I wait to hear whether my noble friend has any comments. If not, perhaps he will write to me.

9.8 p.m.

Lord Thomson of Monifieth

My Lords, the noble Lord, Lord Lyell, and myself were the first Members of this House to speak who were not themselves members of the sub-committee. I should like to join with the noble Lord in paying tribute to the quality of the report that has been produced. It was a unanimous report.

I am bound to say to the Minister that I am a little disappointed by the slightly lukewarm tone of the submission from her department and of some of her evidence. Perhaps this debate will help to encourage her in her enthusiasm for this particular proposal from the Commission.

I suppose that I should declare some sort of past interest as a former chairman of the Advertising Standards Authority, and indeed of the IBA in its role as a regulator of television advertising. I read their evidence with particular personal interest. My goodness, how the tide of technology has surged forward over the past few years. I was fascinated by the evidence from Mr. Prendergast, the director of consumer policy service at the European Commission. He talked about "some Terry Wogan of France trying to sell his wife diamond rings on the television". Presumably the same thing could be done with selling unit trusts.

One has been aware over some years that some people have been going on about the possibility of a brave new world of armchair shopping; of housewives doing all their shopping by sitting at home pressing the buttons on their modem. I am pretty sceptical about all that. I think that the new telecommunications forms of distance selling will undoubtedly grow. But I rather suspect that most of us go shopping not only in order to buy things but because we rather prefer the hurly-burly of the market-place and the shopping street to the somewhat sterile situation of sitting at home watching a television screen. Nevertheless, the case is made out that with these new developments—and above all with the advent of the single market—we need some kind of proper broad framework of Community regulation.

The directive raises in vivid form the problem of how far the Community should go in harmonising consumer protection. That is perhaps the background of the noble Baroness's limited enthusiasm for the new developments. I agree with her to the extent that, in the past, in my experience the enthusiasts—I would almost say zealots—in the European Commission and the European Parliament have tended to go too far in terms of harmonisation in the field of consumer protection, and indeed in other fields. In my time the classic case was the directive on motor lawn-mower noise. I was then the commissioner for regional development in the Community. I was conscious that in Greenland, of course, no igloo was complete without a motor lawn-mower. And in Sicily, at the other end of my parish, one needed a motor lawn-mower on the golden sands. But my goodness, there was enthusiasm for a directive on motor lawn-mower noise. It was very easy to take the mickey out of that enthusiasm, but when one looked more closely one discovered that there was a certain vested interest in a directive from certain manufacturers—in Germany, for example—as a disguised form of protection for a national industry. To complete that bit of anecdotage, the legend went around the Commission at that time that there was an extremely zealous official who wanted to extend the draft directive on motor lawn-mower noise to have harmonisation of the hours at which anybody throughout the whole Community could use a motor lawn-mower. One of my colleagues, on asking him about the matter, said: "Do you happen to have a next-door neighbour who gets up early on a Sunday morning?". He said, "How on earth did you find that out?".

There is a problem of getting the balance right. For my part, I am greatly encouraged by the evidence of this draft directive—I hope that I do not put too much weight on its proposals—that the Commission is now concerned to make something of a reality of that dreadful word "subsidiarity". In this case, the Commission, and indeed your Lordships' committee, have got the balance about right with, as the noble Baroness, Lady Lockwood, has explained, some characteristically sensible and constructive suggestions for improving the proposal. On those suggestions, we on these Benches strongly agree with the proposal of the committee that financial services should be included. They are a peculiarly sensitive area, where the dangers of impulse buying are quite considerable once one gets into the field of telecommunications.

I agreed also with the committee when it went to the other side in terms of consumer interest and suggested that, as it stands, the proposal on credit cards invites fraud by the consumer and needs modification. It was right in its remarks about the importance of Article 13 and the long-stop role of the Office of Fair Trading in these matters in the United Kingdom. I felt that it was right also in saying that these technologies are changing fast and that business activities associated with them are changing so fast that it may be right to write in the need for a review after perhaps five years.

The basic formula endorsed by the committee is a wise one. I urge the Government to welcome it more positively than they have done so far. It seems to be about right for the new and still limited but growing problem of distance selling and would be the right approach for a whole range of harmonisation issues. I hope it is evidence that the Commission is now taking subsidiarity seriously. It may even manage to invent an even more civilised word for it.

9.15 p.m.

Lord Peston

My Lords, it is an excellent report. It is sensible and informative. It tells us a great deal about problems and therefore I found it extremely useful. The point of departure seems to be paragraph 15 of the report where the committee tells us that we must look to the future on matters of this sort. The noble Lord, Lord Thomson of Monifieth, used the word "technology" in his remarks. Technology is now changing so rapidly that one can hardly keep up with the possibilities.

To take one of my favourite subjects, a great deal of buying computer hardware and software nowadays is done by distance selling. It is an area where some of the problems addressed by the committee emerge very strongly. But it will not be long—indeed it is already happening—before one will simply buy computer software on a network which will be downloaded in exchange for one's credit card number. In other words, there will not be any physical activity in the sense of a product actually arriving. There will be a great deal more of that type of buying occurring and the committee was right to ask us to look to the future. It was right also to remind many people in retailing and so forth that some of the cosy world which they have been used to will be changing rapidly, not only because of the single market but also because of what the noble Lord, Lord Thomson, drew to our attention; namely, changes in technology.

I was pleased with the committee's report in relation to my second point. There was a danger that there would be opposition to distance selling. My view is that the reverse is true; in fact it is a good thing. I hope that nothing happens in the way of intervention by government that prevents welcome developments in distance selling. My favourite anecdote in that regard is that at least one of my friends is extremely keen on distance selling. He is an insomniac and stays just about this side of bankruptcy by spending all night ringing up any number he can find and ordering this or that product. I do not quite go that far. However, in many areas I find distance selling to be a boon.

That takes me on to the point raised by the noble Lady, Lady Kinloss, and others in relation to credit card payment. I agree that there can be problems. My experience, and I am sure that of most other consumers, is that the ability to quote a credit card number down a phone in order to buy various items is useful. We do not want to see any intervention either by the Community or our own Government that would seriously limit that. It happens to be an extremely useful device.

I should like to make two points more broadly on the European experience. One is that it is varied. In discussing different parts of the Community we must bear in mind the scale of distance selling, which differs considerably both with respect to goods and sales. It occurs much less in some countries than others. I shall come on to financial services but there are considerable differences on financial services and distance selling in different countries in the Community.

But it is up to the individual countries as to whether or not they like the service. Here again I agree with the committee and noble Lords who have spoken that, for once, the Community seems to have the balance about right. I speak as a supporter of the Community but not an uncritical one. Its bias has been too much in favour of having a directive rather than not. On this occasion it is just about right in terms of saying, "Let us level up to a good standard but do nothing to stop countries having a better standard if they so wish".

That leads me to two matters. I forgot to give the noble Baroness notice of this question. I take it that where a country under its laws limits trade in particular goods or services it will not be possible to break that by distance selling. The example I have in mind is one of the better bits of the Education Reform Act 1988 which prohibits the sale of bogus degrees in this country—we were becoming the bogus degree centre of the world. The single market does not expose us to that problem, but I take it that our legislation on bogus degrees will apply to distance selling so that we do not get into a situation of "Give me your credit card number and you can be a PhD of the university of you-name-it by return". I should like to have some reassurance on that point.

As far as redress is concerned, my view is that it should be as simple as possible. One cannot overcome the matter where caveat emptor has to be the right principle. I go back to my favourite example. I am a devotee of computer magazines. Some people buy a great deal of computer software and hardware from firms advertising in those magazines. Frequently, they do not get the product for which they have sent money because the companies concerned are, to say the least, perhaps trading with slightly more optimism than they ought to be. In such cases the sensible thing to do is always to pay by credit card and not cash. It is very hard to persuade consumers that they ought to be careful. If it looks as if you are getting something for nothing, you are almost certainly not. That is why we need the directive as well as the principle of caveat emptor. I hope that we will never go in the direction of saying to consumers that they take no risks themselves. Consumers have to realise that the world has a certain hardness in it.

That takes me to where I fear I disagree with the Government, as have other noble Lords. I read the evidence of the noble Baroness to the committee very carefully. I did not take her evidence to mean that she did not believe that consumer protection in the area of financial services was unimportant. Her view was that that could be provided in other ways. Like other noble Lords, I am bound to say that I disagree. I make two points about financial services. First, the decisions that one takes about life and endowment policies are very much bigger than if one buys a piece of software that does not work. In the latter case, if it does not work you may shrug. It has cost a few pounds, or perhaps even £100, but you can live with it. But if as a result of distance selling in particular—though it is not just distance selling—you make a mistake about a faulty life insurance policy, you are carrying a very heavy financial burden for a long time. That is why consumer protection is so important and why I and other noble Lords ask the Government to think about supporting the directive on the inclusion of this area rather than going against it.

My view of redress is that it should be as simple as possible. My idea is that it should be the same redress that one gets at Marks and Spencer. One buys something, takes it home and does not like it. One takes it back and they credit one's account—full stop. There is no argument about it. What we have here to provide redress is largely the small claims court. I like the small claims court, but even that involves a great deal of work and, for a lot of consumers, an effort that is beyond them. Therefore, I hope that on the subject of redress the Government are still thinking in this area and more generally that they should go for the simplest possible system that in the end amounts to, "I do not want it. Take it back and give me back my money".

To conclude, my purpose is two-fold: first, to support the committee and, secondly, to hope—and there is reason to think that I am right to do so—that the Government will respond positively and sympathetically; particularly in the financial services field in so far as the Government have given one word on this but that it will not be their last.

9.25 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Baroness Denton of Wakefield)

My Lords, tonight's speeches have been most helpful and have matched the quality of the report produced by the committee. We in this House should be very proud that reports of such quality come from our committees. The chairman, the noble Baroness, Lady Lockwood, and members of Sub-committee C are to be much congratulated. It comes as no surprise to hear members of the committee praise the noble Baroness's chairmanship. Certainly, from giving evidence, I would feel exactly the same way.

I am sorry that the noble Lord, Lord Thomson, should describe my reception as lukewarm. That is not something I am normally accused of, and I have no lack of enthusiasm for the value of the work that the committee has produced and the efforts that have gone into the report. As the noble Baroness, Lady Lockwood, said, in many ways the report is in line with government thinking. Where it is not it has given us useful food for thought—and, I would suggest, food that is rather more digestible than we heard potatoes were.

I start with some background to the proposed directive, after which I shall outline the Government's current position on the proposal and try to answer most of the points raised in the debate. In bringing the proposal forward the Commission is anticipating the completion of the single market and the development of new distance selling techniques, particularly by electronic means. The Commission predicts that this will lead to a considerable expansion of the market for distance selling across borders within the Community. It considers that there will be a corresponding need for a Community framework of common minimum levels of consumer protection for such transactions. Several noble Lords mentioned the speed of change in this area and recognised that this was a rather less prescriptive directive than we have seen in many previous instances.

The Government are not entirely convinced that the Commission has proved its case for such a directive at the present time. There is much work to do on the directive, so the timescales, I suspect, will come together. That is not to say that there is no case for the directive. Cross-border distance selling is clearly an area with tremendous potential for growth. There may well already be unreported elements of consumer dissatisfaction. We also accept that self-regulation, though it may work well in the United Kingdom—I am always proud to quote the way in which it works here—may not be effective when it comes to cross-border transactions. Our consultation with industry indicates that certain sectors have considerable reservations about the proposal, in particular on financial services. So far as concerns the sale of goods, however, the proposal has received qualified approval. The Government are not opposing the proposal in principle and take the view that the right course is to negotiate constructively. I hope that is not too lukewarm. It is meant to be positive.

Our reservations stem primarily from the fact that the meaning of much of the directive, particularly in the area of definitions and exemptions, is uncertain and could prove extremely difficult to translate into satisfactory provisions in the United Kingdom law. There is considerable need for clarification. It is no benefit to the consumer to have an uncertain situation. In addition, it would appear that the directive was drafted with goods in mind. Its provisions do not in places read across readily into the field of services.

The noble Baroness, Lady Lockwood, asked that I look again at the views I gave to the committee on financial services. The Government remain of the view that financial services should be excluded from the scope of the directive. However, to pick up a point made by the noble Lord, Lord Peston, that is not to say that we do not believe that there are issues there that should not be dealt with. As consumer affairs Minister, I am very concerned that in the area of financial services there should be adequate protection. That is most important. But we do not believe that this directive is the appropriate place.

Perhaps I may explain the reasons why we take that view. As I said, the proposal has been drafted with the simple sale of goods and the supply of services in mind. Services generally and financial services in particular do not fit well or easily into that framework. For instance, not only the cooling off period, which has been mentioned, but also the position of intermediaries in financial services do not fit in easily.

Further, there is no good consumer protection argument for including financial services within the scope of the directive. The financial services sector is already subject to detailed regulation at both national and Community levels. That includes a substantial body of consumer protection measures of the kind in the proposal but tailored to the specific needs of the sector.

The proposal is a broad, horizontal measure and not a suitable instrument with which to regulate financial services which present very particular problems. If financial services are to be further regulated to benefit the consumer—as I have said, I suggest that there may well be need—we believe that it would be better achieved by building on the vertical and service specific measures already in force or currently being developed.

I am pleased to say, however, that except on the issue of the inclusion of financial services, the opinions and recommendations of the committee are very much in line with the Government's own thinking. Perhaps I should say that the Government's own thinking is very much in line with the work, opinions and recommendations of the committee. We understand that the directive is intended to be a minimum one. That means that member states will be allowed to introduce and maintain more stringent legislation if they so wish. That will avoid any danger that some of the existing levels of protection afforded consumers in member states might have to be lowered when the directive is implemented. The current proposal for the directive does not explicitly state that, and in Brussels I shall be asking for the point to be clarified.

I agree that the information provided to the consumer should be given only once, although we have not come to a view on whether this should be limited to hard copies. Indeed, I am concerned that the provisions in Articles 6 and 10 of the proposal may be too onerous in that they could force the supplier to give some information twice. That is another point that we shall address in our negotiations.

We are doubtful about the inclusion of provisions regarding an individual's right to privacy. That again is an issue that 'could be better dealt with elsewhere and not in a proposal for distance selling. The Government agree with the committee that the consumer should not be an unwilling recipient of mail shots, telephone canvassing or unsolicited faxing. We would not go so far as to support a proposal that the consumer should have to give prior consent before being solicited, the one exception being where the consumer suffers economic loss because of solicitations such as unsolicited faxing. The noble Baroness, Lady Kinloss, rightly pointed out that we have moved from the original drafting in this area to a more satisfactory situation. We shall certainly give careful consideration to the question that this might be solved in Article 4. We shall bear that very much in mind in our negotiations.

The Government agree with the committee also in supporting the provisions for a seven-day cooling-off period and a 30-day time limit for performance where no time limit is stipulated. Similarly, we are in agreement with the committee's views on the provisions regulating unsolicited goods which threaten to prevent suppliers sending on trial goods similar to those ordered even though, as the noble Baroness, Lady Lockwood, pointed out, that practice is common and generally beneficial to the consumer.

The Government, the committee and noble Lords who have spoken this evening understand the need for safeguards against the abuse of credit cards, and everyone is concerned that the current provisions in the proposal are too heavily loaded in favour of the consumer. The Government consider that any need for safeguards in this area could be better dealt with elsewhere.

I note that the committee is content for the security of deposits and other advanced payments to be dealt with in the recommendation, but suggests that the situation should be reviewed within three years. The Government do not support compulsory protection for deposits, which would be onerous and expensive, but in practice I am pleased to say that a good deal of protection is provided by the existing self-regulatory regime. Most people have experienced good practice.

Although the Government are still considering the issue, we are inclined to agree with the committee that the right to bring representative actions should be restricted to bodies required to act in the public interest, as this will yield consistent standards of enforcement and reduce unnecessary multiplication of litigation. The issue raises difficult questions of jurisdiction and consumer redress which obviously need serious and further consideration.

The noble Lord, Lord Peston, referred to the simplicity of redress. I agree wholeheartedly that it has to be as simple as it can securely be for the consumer. There has been much improvement in the small claims court procedure. France has an arbitration system which is similar but less formal, and I understand that the practice in Ireland is also less formal. That may be something that we can examine, because, if there is no simple, straightforward redress, the benefit to the consumer is necessarily limited. I am pleased to assure the noble Lord that the normal rules of the Common Market regarding prohibitions on the sale of particular goods or services on the ground of public policy will apply in the case of distance selling, so there will not suddenly emerge a market for bogus degrees. That should reassure the noble Lord and his colleagues about the future.

I agree with the noble Lord, however, that there is a great need to strengthen the provisions governing the education and financial services area. I have increasing anxieties about people buying insurance policies because they get a free alarm clock. There is a need for "buyer beware" to be stressed in many cases.

The noble Baroness, Lady David, referred to the protection of workers. I should emphasise that what we are considering is a consumer protection and single market measure and that, although I am not necessarily disagreeing with the noble Baroness's point, I am not convinced that this is the place to address it. If it would be helpful, however, I shall certainly look at the issue and write to the noble Baroness about it.

We have all expressed dissatisfaction about inertia selling in all its forms in this area. I suspect that the whole of your Lordships' House will welcome the contribution made by my noble friend Lord Lyell. He rightly drew attention to the fact that there should be a safety net for consumers and said that this directive does not propose to lessen support for the consumer in our own country.

I was interested to learn of the Community experiences of the noble Lord, Lord Thomson. I agree wholeheartedly that it is beneficial that the fashionable word now instead of "harmonisation" is "subsidiarity". It could be better said, however.

We talked about self-regulation and the advantage we enjoy in this country. Some cross-border arrangements already exist. For example, the European Advertising Standards Alliance has been set up. In the direct marketing field itself there is now a European Federation of Direct Marketing. It is early days yet, but I am pleased that the foundations for a cross-border system of self-regulation are beginning to be built. That is by far the most effective means of providing protection for the consumer. Legislation often means merely that the sharks know in which direction to swim to avoid it. If the industry can look after itself and have as its own priority the protection of the consumer, we can look forward to a much happier situation.

I apologise if I have missed some point. I shall read Hansard carefully and answer any points that I have not covered. It may be helpful if I give an update upon where we have reached in the negotiations in Brussels. The proposed directive has completed a first reading in the Council working party. However, there have been only two short working party meetings so far this year. Further meetings are unlikely under the Danish presidency. Many member states maintain study and consultation reservations on the proposal, and a few member states question the need for the directive. Others are more enthusiastic but, nevertheless, have expressed reservations about it to varying degrees. A number of member states are in favour of the exclusion of financial services. Currently, there is sufficient support for the formation of a blocking minority on that issue, should that ever be necessary.

The UK's negotiating priorities are to clarify uncertainties in the present drafting. There is much more work to be done, a point to which the committee drew attention, to ensure the exclusion, at least, of financial services. Provided that those anxieties can be met, we hope that a directive acceptable to the UK can be negotiated. There can be no doubt that the committee has contributed a valuable input into the whole subject. We appreciate that and express our gratitude to the committee for the work it has done. I am sure that the Commission too will appreciate the input that the committee brings to the discussions.

9.43 p.m.

Baroness Lockwood

My Lords, as I rather suspected, and said at the beginning of the debate, there has been wider agreement on the contents of the report in this debate than there was in the previous debate. I am grateful to all those who have taken part.

I was grateful to the noble Lord, Lord Lyell, for his support. The whole question of self-regulation is a British import into the Community. There was considerable resistance at one time to the idea of self-regulation, but this is one of the areas where we have been successful in importing our system, and that is all to the good.

I had a great deal of sympathy with the noble Lord, Lord Thomson of Monifieth, who spoke of his amazement at finding someone selling diamonds by Minitel in France to someone in another country. Some members of the committee had a similar reaction. It may be a question of generation, with he and I being of the same generation. The younger generation takes quickly to the whole idea of electronic gadgets. I suppose that it will be natural to the younger generation. That is why it is so important to have a directive on the subject across the Community. I agree with my noble friend Lord Peston that it should be as simple as possible. That was part of the committee's concern and is behind many of our recommendations.

I am sorry that the noble Baroness, Lady Denton, was unable to agree with the committee as regards financial services. Indeed, in her speech she went further than she did in her official response when she stated that the matter was still open. However, in her speech she said that she remained of the view that financial services should be excluded. I am sorry about that. Perhaps, during the negotiations, comments may be made which will persuade her and some of the other countries which believe that financial services should not be included. The committee saw that as one form of distance selling. It does not matter whether one is selling goods or services, or whether the goods are financial or otherwise. The committee accepted that there is already a good deal of protection in the financial service sector which would not be affected by the draft directive.

There we are; there is a slight difference of opinion. I hope that as a result of the negotiations which the Minister mentioned, we shall emerge with a satisfactory directive which will protect both the seller and the purchaser.

On Question, Motion agreed to.

House adjourned at thirteen minutes before ten o'clock.